A Primer on Using Medicaid for People Experiencing Chronic Homelessness and Tenants in Permanent Supportive Housing. 7.3. Payment Reform: Emerging Structures for Improving Health Outcomes and Reducing Costs


Increasingly, states are working to develop more efficient and effective systems of care. The Affordable Care Act included many provisions to give these efforts a substantial push forward. This section examines several approaches that state Medicaid officials could consider as ways to meet the needs of people who are now experiencing chronic homelessness or living in PSH. These efforts are all works in progress; they face many challenges and are in the process of developing a range of approaches to meet them. Their experiences offer state Medicaid officials a look at practices they might adapt and what aspects of their Medicaid programs they could use or modify to do so.

State Medicaid officials, innovative health care providers, and health policy experts are working to design and implement new models of payment that provide financial incentives for coordinating and integrating care, containing costs, and improving quality and health outcomes. Some of these new payment models can provide opportunities to make changes in the health care delivery system that will improve care and lower health care costs for people with the greatest health and social needs, including those with multiple chronic health conditions and co-occurring behavioral health disorders who have experienced chronic homelessness. Emerging approaches to payment and delivery system reform may include new ways to provide care for PSH tenants including ways to pay for some of the services in PSH.

The reality of Medicaid funding is that just 5 percent of Medicaid beneficiaries account for about 50 percent of Medicaid spending.96 Further analysis indicates that about 60 percent of these high-cost beneficiaries (i.e., 3 percent of all beneficiaries) have mental health and substance use disorders that occur along with chronic physical illnesses.97 This combination of co-occurring medical and behavioral health disorders contributes to high use of costly health services (see Exhibit 7.1, reproduced from the CHCS publication cited in footnote 97).

EXHIBIT 7.1. Impact of Behavioral Health Co-morbidities on Per Capita Hospitalization among Medicaid-Only Beneficiaries with Disabilities
EXHIBIT 7.1, Bar Chart: Asthma and/or COPD--No Mental Illness & No Drug/Alcohol (0.42), Mental Illness & No Drug/Alcohol (0.65), Drug/Alcohol & No Mental Illness (1.25), Mental Illness & Drug/Alcohol (1.91); Congestive Heart Failure--No Mental Illness & No Drug/Alcohol (0.92), Mental Illness & No Drug/Alcohol (1.39), Drug/Alcohol & No Mental Illness (1.97), Mental Illness & Drug/Alcohol (2.96); Coronary Heart Disease--No Mental Illness & No Drug/Alcohol (0.47), Mental Illness & No Drug/Alcohol (0.68), Drug/Alcohol & No Mental Illness (1.33), Mental Illness & Drug/Alcohol (1.97); Diabetes--No Mental Illness & No Drug/Alcohol (0.40), Mental Illness & No Drug/Alcohol (0.68), Drug/Alcohol & No Mental Illness (1.38), Mental Illness & Drug/Alcohol (2.12); Hypertension--No Mental Illness & No Drug/Alcohol (0.34), Mental Illness & No Drug/Alcohol (0.58), Drug/Alcohol & No Mental Illness (1.22), Mental Illness & Drug/Alcohol (1.94).

Because a large share of Medicaid spending is associated with care for seniors and people who have disabilities or multiple chronic health conditions and co-occurring behavioral health disorders, states are increasingly seeking ways to improve their ability to manage care for these groups of beneficiaries in ways that produce better health outcomes while also reducing expensive and unnecessary service use. Some of these strategies include efforts to coordinate or integrate care for medical, mental health, and substance use conditions.

By definition, people experiencing chronic homelessness have disabilities and they often have co-occurring and interacting chronic medical and behavioral health conditions. Many communities are prioritizing the most vulnerable chronically homeless people and those who have been the most frequent users of hospital emergency rooms and inpatient care for access to PSH. This means that initiatives that focus on high-cost, high-need Medicaid beneficiaries with complex health conditions are likely to include people who are experiencing chronic homelessness as well as those who are now living in PSH. This situation creates opportunities to incorporate services that are delivered in or linked to PSH as a component of emerging payment and delivery system reforms in some states.

Anticipating that the growth in health care costs can be contained by a significant restructuring of the system to incentivize performance/health outcomes and encourage a greater focus on prevention, primary care, and care coordination, the Affordable Care Act enabled several new structures for integrated care management and payment, including health homes and ACOs, along with a focus on "super-utilizers." These new delivery system and payment models incorporate options for financing more integrated care delivery and care coordination, which are seen as vital to two major system goals--improving health outcomes and controlling costs. CMS offers states substantial encouragement to participate in these efforts to become more efficient and effective.98

The strategies described in this section are all geared to working with a highly targeted subset of the Medicaid population--those who need more hands-on care and coordination than other beneficiaries because of multiple health and behavioral conditions, social needs, high levels of vulnerability, and often a history of high costs for avoidable hospitalizations and emergency room visits. Goals for these strategies include the following:

  • Integrating care across physical health, mental health, and substance use treatment (often also pharmacy and sometimes dental), or at least across mental health and substance use.

  • Identifying and targeting the people who have the highest levels of avoidable costly care.

  • Paying attention to social determinants of health--poverty, housing, the lack of social supports--and developing working relationships with community agencies that can help alleviate them (e.g., housing, social services).

  • Making maximum use of available data, improving data adequacy, developing shared data systems, using data for targeting, monitoring, and evaluation.

  • Using payment mechanisms that cover the costs of care integration and coordination such as team meetings and face-to-face care management.

  • Using payment mechanisms that facilitate flexibility in care delivery--moving toward capitation, payment per-episode-of-care, or payment for a defined bundle of services.

  • Developing effective ways to adjust payments on the basis of patient risk/complexity/level of care needed, both across patients (some people needing more-intensive care than others) and within patients over time as level of functioning changes.

  • Developing appropriate incentives--pay for performance, opportunities to reinvest a share of savings.

7.3.1. Super-Utilizer Programs

In a growing number of states, specialized programs are being developed to focus on improving care and reducing costs for a small subgroup of "super-utilizers." These are Medicaid beneficiaries for whom health care costs are extraordinarily high and "impactable," meaning that some costs could be reduced or avoided with more effective interventions. Patients in this group often have multiple emergency department visits and/or preventable hospital admissions for multiple poorly controlled chronic medical conditions, co-occurring behavioral health disorders, and social barriers, including homelessness.

In its informational bulletin of July 24, 2013, CMS states "Programs that target 'super-utilizers'--beneficiaries with complex, unaddressed health issues and a history of frequent encounters with health care providers--demonstrate early promise of realizing [the potential to improve care, improve health, and reduce costs] for Medicaid populations." Super-utilizer programs may work in close partnership with primary care providers, enhancing their capacity to care for people who are super-utilizers and provide alternative intensive services, or they may transfer these patients from primary care arrangements to a specialized care setting or team.

Super-utilizer programs often embed case managers or outreach workers in primary care settings, where they work closely with medical providers to assure appropriate care. Alternatively, they may be housed in community organizations that work with high-utilizers who receive care from multiple primary care providers. The care managers provide added support to high-utilizers while also helping to build primary care providers' capacities to meet the needs of this part of their patient population. Finally, some programs create interdisciplinary care teams that have a geographic focus, accepting referrals from and working with primary care providers in the region. These teams may be based in Community Health Centers, home health agencies, or other community-based organizations.

Benefits of Super-Utilizer Programs

A review of pioneering programs for super-utilizers identified key lessons learned and promising practices:99

  • High-utilizer programs can make substantial reductions in hospital admissions, hospital days, emergency department visits, and total costs of care.

  • For homeless or precariously housed people, providing permanent housing with case management appears to be the most powerful way to reduce costly health care utilization.

  • Many programs have a home visit component, and they engage in frequent, in-person outreach to clients to build trust, establish relationships, and provide needed supports.

  • Most programs perform a careful initial assessment, develop a care plan, and incorporate regular follow-up by the care management team.

  • There is no standard composition of care management teams. Most programs create interdisciplinary care teams that include a nurse and a social worker. It is helpful if teams also work with a psychiatrist and pharmacist. Nonprofessional personnel such as navigators or health coaches can assist professional team members.

  • Programs tend to have a coaching philosophy. They attempt to teach patients to better self-manage their health and social problems, and to navigate health and social services systems.

  • Coaching patients to understand their medications and to become more medication adherent is an essential feature of all programs.

For people experiencing chronic homelessness or living in PSH, a big advantage of super-utilizer programs is that the programs often integrate or coordinate treatment for mental illness and substance use disorders with primary care and other medical care, and also collaborate with community-based agencies to address social determinants of health including stable housing and social supports. While the programs do not use Medicaid to pay the cost of housing itself, they recognize the importance of stable housing for reaching the goal of improved health outcomes and reduced use of avoidable services, and work to help clients find and keep housing. These programs may deliver, partner with, or supplement the services component of a supportive housing program for people experiencing homelessness who are frequent users of hospital care.

Payment Mechanisms for Super-Utilizer Programs

States have used a variety of Medicaid payment mechanisms to cover the costs of super-utilizer programs, including the costs of care management. These include: (1) a fixed per-member per-month primary care case management or other care coordination fee to fund care managers; (2) multi-payer case management payments involving Medicaid, Medicare, and commercial insurers for privately insured individuals; (3) a single per-episode-of-care payment that covers all costs associated with a particular episode of care; (4) a risk-based per-member per-month capitation payment to a managed care health plan; and (5) shared savings arrangements with care teams if program clients incur lower-than-expected costs for total care over a fixed time period. These payment mechanisms may be tiered or adjusted based on the complexity of an individual's medical, psychosocial, and behavioral health conditions.

Some approaches to payments for super-utilizer programs cover the cost of coordination but not the cost of covered health care services, for which providers may be reimbursed through existing fee-for-service or managed care payment arrangements. Other approaches to payment include the cost of health care services in addition to the cost of coordination. Examples of each payment mechanism and what it covers are included in the CMS July 24, 2013, bulletin.100

Financing for super-utilizer programs often incorporate benefits covered under Medicaid state plans, including Medicaid optional benefits such as health homes or TCM, and FQHC payment mechanisms. States may also use payment mechanisms included in Medicaid 1115 waivers or federally-funded demonstration programs such as the Multi-Payer Advanced Primary Care Practice Demonstration and FQHC Advanced Primary Care Practice Demonstration. Several states implementing super-utilizer programs are doing so in part with grant funding from CMS's Center for Medicare and Medicaid Innovation. In addition to public funding, many pioneering super-utilizer programs also receive grants and technical support from philanthropy.

In addition to the various ways that state Medicaid offices pay for the care provided by super-utilizer programs, federal Medicaid funding is available at a 90 percent match rate for a variety of activities related to data system design, development, and implementation costs. High-quality data is essential for super-utilizer programs--for targeting, ongoing care management, monitoring, and evaluation--so the opportunity to have federal funding to cover most of the up-front costs of a good data system is an added value to state Medicaid programs. Participants at a super-utilizer summit convened by CHCS in 2013 emphasized the importance of good data at every point along the path of program development, starting with an assessment of whether a state needs such a program, determining whom it would serve, developing and operating targeting strategies, contributing to care decisions, monitoring the program, and evaluating its impact.101

7.3.2. ACOs and Integrated Care Models

ACOs are networks of physicians, hospitals, and other providers that work collaboratively to improve the quality of health care services and reduce costs for a defined patient population. ACOs have financial incentives for coordinating care, containing costs, and improving quality across multiple sites of patient care. This makes ACOs and ACO-like integrated care models particularly promising as a strategy for integrating care for Medicaid beneficiaries who have multiple chronic conditions and face social barriers to health, including people experiencing chronic homelessness and many of the people who are living in PSH.

ACOs and similar integrated care models emphasize person-centered, continuous and comprehensive care. The CMS Center for Medicaid and CHIP Services released two letters to state Medicaid directors in 2012, providing guidance regarding Medicaid integrated care models, including ACOs and ACO-like models for payment and service delivery reform.102

CMS has been working to support the development of ACOs since before the passage of the Affordable Care Act, offering multiple approaches to shared savings and incentive structures with the goal of promoting more coordinated and appropriate care for Medicare and Medicaid beneficiaries. Most of the action in the first few years focused on Medicare, but increasing attention is being paid to developing integrated care models that are similar to ACOs for seniors and disabled adults within Medicaid, as well as for people who are beneficiaries of both programs (dual eligibles).103

ACOs for Medicaid beneficiaries are still works in progress and will be so for years to come, in part because there is no specific current statutory authority for ACOs within the Medicaid program. ACOs or similar integrated care models for Medicaid beneficiaries are being implemented by states using a mix of financing mechanisms that include fee-for-service, managed care, and primary care case management. Increasingly states are working to implement ACOs or similar models within a managed care environment, working to define and align responsibilities and financing incentives between managed care health plans and ACOs.104

CMS allows states considerable flexibility in structuring payment mechanisms for ACO or ACO-like models. While policy development is still under way at the federal level, CMS is working with states to move from volume-based fee-for-service reimbursement to integrated care models with financial incentives to improve beneficiary health outcomes. States may offer care coordination payments, reimbursement through per-member per-month arrangements, and/or financial incentives through shared savings arrangements or incentive payments for providers who demonstrate improved performance on quality and cost measures.105 Some state proposals for integrated care models may require a combination of state plan and waiver authority.106

In addition, CMS offers an extensive array of technical assistance to states and others seeking to form ACOs, along with the opportunity to obtain innovation grants and financial help with the data system development work that is required for an ACO to operate effectively.

States that are working to implement ACOs or ACO-like integrated care models for Medicaid beneficiaries may take different approaches with varying levels of integration across physical health, behavioral health, public health, and community services. The models that will be of most relevance to people experiencing chronic homelessness or living in PSH will be those that opt for maximum integration across all of these domains, as all are relevant to the needs of this population.

As observed by CHCS, some state Medicaid programs have adopted care coordination models that are similar to ACOs, and these models generally fall into one of three types.107 The first is a provider-driven model, with providers establishing integrated delivery systems or collaborative networks that assume some level of financial risk and responsibility for coordinating care and achieving client outcomes, including identifying and managing care for high-cost patients.

The second type is driven by managed care health plans that are actively engaged with health care providers in forming an ACO. Health plans assume a greater role in supporting data systems and building provider capacity for care management. The managed care organizations involved retain the financial risk of their capitation structures, but may develop new payment models for their contracted providers, who partner with the managed care organization to improve client outcomes.

Hybrid models incorporate elements of managed care health plan-led and provider-led ACOs. This approach builds upon the strengths of health plans, which have strong capacity for managing data and claims, and providers, who have the capacity to implement targeted care management and support as well as linkages to community partners to better manage care for patients with complex needs.

Another third type of ACO is the regional or community partnership. In this model, community organizations join together to develop care teams that manage the care a client receives and work to improve health outcomes while avoiding unnecessary care. These partnerships go well beyond the more usual interdisciplinary team approach, in that they create a formal organizational entity that receives payments and shares in savings. However, the state or managed care organizations may retain the financial risk if the total cost of care needed exceeds the level of payment provided to the ACO.

View full report


"PSHprimer.pdf" (pdf, 1.43Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®